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USC Title 26 enacted through 2008

§ 1272. Current inclusion in income of original issue discount

 
(a)
Original issue discount on debt instruments issued after July 1, 1982, included in income on basis of constant interest rate
 
(1)
General rule
 
For purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount issued after July 1, 1982, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument.
 
(2)
Exceptions
 
Paragraph (1) shall not apply to -
 
(A)
Tax-exempt obligations
 
Any tax-exempt obligation.
 
(B)
United States savings bonds
 
Any United States savings bond.
 
(C)
Short-term obligations
 
Any debt instrument which has a fixed maturity date not more than 1 year from the date of issue.
 
(D)
Obligations issued by natural persons before March 2, 1984
 
Any obligation issued by a natural person before March 2, 1984.
 
(E)
Loans between natural persons
 
(i)
In general
 
Any loan made by a natural person to another natural person if -
 
(I)
such loan is not made in the course of a trade or business of the lender, and
 
(II)
the amount of such loan (when increased by the outstanding amount of prior loans by such natural person to such other natural person) does not exceed $10,000.
 
(ii)
Clause (i) not to apply where tax avoidance a principal purpose
 
Clause (i) shall not apply if the loan has as 1 of its principal purposes the avoidance of any Federal tax.
 
(iii)
Treatment of husband and wife
 
For purposes of this subparagraph, a husband and wife shall be treated as 1 person. The preceding sentence shall not apply where the spouses lived apart at all times during the taxable year in which the loan is made.
 
(3)
Determination of daily portions
 
For purposes of paragraph (1), the daily portion of the original issue discount on any debt instrument shall be determined by allocating to each day in any accrual period its ratable portion of the increase during such accrual period in the adjusted issue price of the debt instrument. For purposes of the preceding sentence, the increase in the adjusted issue price for any accrual period shall be an amount equal to the excess (if any) of -
 
(A)
the product of -
 
(i)
the adjusted issue price of the debt instrument at the beginning of such accrual period, and
 
(ii)
the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), over
 
(B)
the sum of the amounts payable as interest on such debt instrument during such accrual period.
 
(4)
Adjusted issue price
 
For purposes of this subsection, the adjusted issue price of any debt instrument at the beginning of any accrual period is the sum of -
 
(A)
the issue price of such debt instrument, plus
 
(B)
the adjustments under this subsection to such issue price for all periods before the first day of such accrual period.
 
(5)
Accrual period
 
Except as otherwise provided in regulations prescribed by the Secretary, the term "accrual period" means a 6-month period (or shorter period from the date of original issue of the debt instrument) which ends on a day in the calendar year corresponding to the maturity date of the debt instrument or the date 6 months before such maturity date.
 
(6)
Determination of daily portions where principal subject to acceleration
 
(A)
In general
 
In the case of any debt instrument to which this paragraph applies, the daily portion of the original issue discount shall be determined by allocating to each day in any accrual period its ratable portion of the excess (if any) of -
 
(i)
the sum of (I) the present value determined under subparagraph (B) of all remaining payments under the debt instrument as of the close of such period, and (II) the payments during the accrual period of amounts included in the stated redemption price of the debt instrument, over
 
(ii)
the adjusted issue price of such debt instrument at the beginning of such period.
 
(B)
Determination of present value
 
For purposes of subparagraph (A), the present value shall be determined on the basis of -
 
(i)
the original yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period),
 
(ii)
events which have occurred before the close of the accrual period, and
 
(iii)
a prepayment assumption determined in the manner prescribed by regulations.
 
(C)
Debt instruments to which paragraph applies
 
This paragraph applies to -
 
(i)
any regular interest in a REMIC or qualified mortgage held by a REMIC,
 
(ii)
any other debt instrument if payments under such debt instrument may be accelerated by reason of prepayments of other obligations securing such debt instrument (or, to the extent provided in regulations, by reason of other events), or
 
(iii)
any pool of debt instruments the yield on which may be affected by reason of prepayments (or to the extent provided in regulations, by reason of other events).
 
To the extent provided in regulations prescribed by the Secretary, in the case of a small business engaged in the trade or business of selling tangible personal property at retail, clause (iii) shall not apply to debt instruments incurred in the ordinary course of such trade or business while held by such business.
 
(7)
Reduction where subsequent holder pays acquisition premium
 
(A)
Reduction
 
For purposes of this subsection, in the case of any purchase after its original issue of a debt instrument to which this subsection applies, the daily portion for any day shall be reduced by an amount equal to the amount which would be the daily portion for such day (without regard to this paragraph) multiplied by the fraction determined under subparagraph (B).
 
(B)
Determination of fraction
 
For purposes of subparagraph (A), the fraction determined under this subparagraph is a fraction -
 
(i)
the numerator of which is the excess (if any) of -
 
(I)
the cost of such debt instrument incurred by the purchaser, over
 
(II)
the issue price of such debt instrument, increased by the portion of original issue discount previously includible in the gross income of any holder (computed without regard to this paragraph), and
 
(ii)
the denominator of which is the sum of the daily portions for such debt instrument for all days after the date of such purchase and ending on the stated maturity date (computed without regard to this paragraph).
 
(b)
Ratable inclusion retained for corporate debt instruments issued before July 2, 1982
 
(1)
General rule
 
There shall be included in the gross income of the holder of any debt instrument issued by a corporation after May 27, 1969, and before July 2, 1982 -
 
(A)
the ratable monthly portion of original issue discount, multiplied by
 
(B)
the number of complete months (plus any fractional part of a month determined under paragraph (3)) such holder held such debt instrument during the taxable year.
 
(2)
Determination of ratable monthly portion
 
Except as provided in paragraph (4), the ratable monthly portion of original issue discount shall equal -
 
(A)
the original issue discount, divided by
 
(B)
the number of complete months from the date of original issue to the stated maturity date of the debt instrument.
 
(3)
Month defined
 
For purposes of this subsection -
 
(A)
Complete month
 
A complete month commences with the date of original issue and the corresponding day of each succeeding calendar month (or the last day of a calendar month in which there is no corresponding day).
 
(B)
Transfers during month
 
In any case where a debt instrument is acquired on any day other than a day determined under subparagraph (A), the ratable monthly portion of original issue discount for the complete month (or partial month) in which such acquisition occurs shall be allocated between the transferor and the transferee in accordance with the number of days in such complete (or partial) month each held the debt instrument.
 
(4)
Reduction where subsequent holder pays acquisition premium
 
(A)
Reduction
 
For purposes of this subsection, the ratable monthly portion of original issue discount shall not include its share of the acquisition premium.
 
(B)
Share of acquisition premium
 
For purposes of subparagraph (A), any month's share of the acquisition premium is an amount (determined at the time of the purchase) equal to -
 
(i)
the excess of -
 
(I)
the cost of such debt instrument incurred by the holder, over
 
(II)
the issue price of such debt instrument, increased by the portion of original issue discount previously includible in the gross income of any holder (computed without regard to this paragraph),
 
(ii)
divided by the number of complete months (plus any fractional part of a month) from the date of such purchase to the stated maturity date of such debt instrument.
 
(c)
Exceptions
 
This section shall not apply to any holder -
 
(1)
who has purchased the debt instrument at a premium, or
 
(2)
which is a life insurance company to which section 811(b) applies.
 
(d)
Definition and special rule
 
(1)
Purchase defined
 
For purposes of this section, the term "purchase" means -
 
(A)
any acquisition of a debt instrument, where
 
(B)
the basis of the debt instrument is not determined in whole or in part by reference to the adjusted basis of such debt instrument in the hands of the person from whom acquired.
 
(2)
Basis adjustment
 
The basis of any debt instrument in the hands of the holder thereof shall be increased by the amount included in his gross income pursuant to this section.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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